I am Forbes' Opinion Editor. I am a Senior Fellow at the Manhattan Institute for Policy Research, and the author of How Medicaid Fails the Poor (Encounter, 2013). In 2012, I served as a health care policy advisor to Mitt Romney. To contact me, click here. To receive a weekly e-mail digest of articles from The Apothecary, sign up here, or you can subscribe to The Apothecary’s RSS feed or my Twitter feed. In addition to my Forbes blog, I write on health care, fiscal matters, finance, and other policy issues for National Review. My work has also appeared in National Affairs, USA Today, The Atlantic, and other publications. I've appeared on television, including on MSNBC, CNBC, HBO, Fox News, and Fox Business. For an archive of my writing prior to February 2011, please visit avikroy.org. Professionally, I'm the founder of Roy Healthcare Research, an investment and policy research firm. In this role, I serve as a paid advisor to health care investors and industry stakeholders. Previously, I worked as an analyst and portfolio manager at J.P. Morgan, Bain Capital, and other firms.

Orszag: Another Mandate May Be Necessary to Save Obamacare's Long-Term Care Entitlement

Back in February, I touched upon a hearing of the Senate Finance Committee, which addressed the CLASS Act: Obamacare’s new entitlement for long-term care for the elderly. In that hearing, HHS Secretary admitted the obvious, that CLASS was “totally unsustainable,” due to its toxic mix of loose eligibility requirements and subsidized benefits. I wrote:

What’s far from clear, however, is whether or not the CLASS Act is salvageable without an individual mandate. Any such entitlement is certain to attract the sickest population at the expense of the healthy, and given Sebelius’ ideological approach to health insurance, it’s doubtful that she can tweak the program’s eligibility requirements enough to make it truly sustainable.

An individual mandate for CLASS will evolve just as it has for emergency care: badly designed federal policy will create a large fiscal problem. Then, mandate advocates will shake their heads and say, “Sorry, the only way to fix this problem is to install a mandate so people don’t game the system.”

I noted that Sen. John Thune (R., S.D.) asked Sebelius whether or not she advocated an individual mandate for CLASS in order to prop up its stability. Sebelius refused to rule it out:

I—I can’t tell you about the mandate, but I know that the modeling, if you are at the 2 to 3 percent participation rate, you have a barely sustainable program. If you move closer to 5 or 6 percent, you have a much more sustainable program, and that’s one of the issues that’s being very carefully looked at…I think increasing the work requirement to 5 full years, having some anti-gaming provisions so people can’t opt in and out of the system which [is] possible under the original [law]…having premiums that are indexed, are all part of the framework of what could make this program sustainable.

This past Friday, Sen. Thune had an op-ed in the Washington Times, where he called attention to a piece in Foreign Affairs by former Obama budget chief Peter Orszag. Orszag thinks that forcing people to buy CLASS may be one of the “only solutions” to saving the program:

A final concern involves the CLASS Act, a voluntary national long-term-care insurance program created by the bill. There is a serious risk that healthy people may be reluctant to join the program, whereas those who most need long-term care will be eager to do so, jeopardizing the idea of a broad and stable risk pool. The only solutions may be to make the purchase of such insurance mandatory or to require employers to provide it by default unless employees opt out — a strategy that has worked well in boosting participation rates in 401(k) plans.

As Thune points out, this is the logical consequence of letting Obamacare’s individual mandate stand: soon, the government will see fit to mandate all sorts of purchases for the greater good.

Think about that for a minute. Before the health insurance mandate came along, a federal requirement for people to buy a particular product – insurance or anything else – was unprecedented in our nation’s history. Yet a little more than one year later, there already is a call for the federal government to impose another mandate on the American people. The first step in this direction was bad enough. A second step clearly would take us down a dangerous path of even more federal overreach.

This is not just idle speculation by a former government official. In fact, the way the Obama administration has defended its health care law makes it seem almost impossible for it to do anything except require that everybody buy into the fatally flawed CLASS program.

Here’s how it works: The administration claims that the insurance mandate is “essential” because, without it, insurance markets would be subject to adverse selection – only sick people would enroll and premiums would skyrocket as a result. But the CLASS Act is subject to the same – or even greater – adverse selection pressures as the market for health insurance. So if Obamacare has an essential mandate to purchase health insurance, it seems it would be just as essential that the government mandate participation in CLASS.

A number of the debt-reduction deals incorporated a repeal of CLASS. Hopefully, one way or another, we’ll get there before it’s too late.

UPDATE 1: Orszag wrote me to say that I “mischaracterize and misunderstand” his position. He’s given me permission to publish the relevant portion of his email:

Avik:

You (and Sen. Thune, for that matter) mischaracterize and misunderstand the sentences cited from my Foreign Affairs article. It was not that we should mandate CLASS. It was rather that, to get any long-term insurance market functioning — whether publicly or privately provided — we would likely need either a mandate or an opt-out. The experience with the private market absent either step would seem to be consistent with my point (which is not surprising given the adverse selection effects involved), and I’m curious as to how you see long-term insurance developing absent either step.

The LTCi market is, by definition, narrow and focused. That is, neither the very wealthy nor the poor need it. One of the most fundamental rules of the insurance business is that first there must be a need for the coverage. There’s a specific, well-defined middle-class swath that most benefit from LTCi, and that’s further diminished by the fact that it’s not inexpensive coverage.

Perhaps the most important benefit of modern LTCi products is Partnership Compliance, which encourages folks to buy policies in order to stave off the Medicaid folks. But CLASS Act plans are not Partnership compliant, making them even less attractive and less valuable.

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While 401K participation is up, the total amount of saving is down. Watch government by the clueless for the clueless at work. Eventually there will be Medicare for the elderly but no Medicare providers willing to see them. There will be no medical insurance for union members because there will not be any private insurance companies to provide the coverage. Regulation and mandates will crush small businesses until there are a much fewer number of businesses to regulate and therefore fewer jobs. When the jobless cannot pay the mandates, the government will add them to the rolls of the permanently unemployed and putthe burden of the mandates on the few remaining workers that are still working. North Korea is a perfect example of a perfect progressive society with equal misery for all.